May 10, 2016

New Regulation Results In Doubling Up False Claims Act Penalties

Written by Marisa M. Bavand


While many corporations in the federal contracting arena have been expecting regulations to further limit Federal False Claims Act (FCA) liability, those expectations have been called into question by a new federal regulation released last week aimed at doubling False Claims Act penalties. Raised by the obscure Railroad Retirement Board, which infrequently generates FCA cases involving fraudulent benefit claims, the board issued a ruling adjusting penalties.

Under the new rule, minimum per claim penalties would jump from $5,000 to $10,781, and maximum per-claim penalties would rise from $11,000 to $21,563. We can anticipate a similar increase from the U.S. Department of Justice, and other agencies, that are required to publish rules by July 1.
The Eighth Amendment prohibits the imposition of excessive fines, and thus these increases in penalties will also likely result in an increase in challenges to the fines as excessive. This situation will be most commonly seen in cases involving a significant number of fraudulent billing claims but only a small amount of actual damages per billing – resulting in penalties far exceeding the actual damage amount.